Reference no: EM132836147
Background:
In November 2017, a new Chinese firm, Lynk & Company, offered cars for the first time, 3,000 vehicles were sold online in 2 minutes. Lynk's parent is Zhejiang Geely Holding Group headquartered in Hangzhou, China. The Lynk 01 is a gasoline-powered SUV that offers free wireless connectivity, voice-operated music streaming, and car-sharing services. After China, Lynk plans to market their vehicles across Europe and the United States. An all-electric version of the Lynk is coming soon. Geely automobile sales in China rose 63 percent in 2017 as "made in China" vehicles start to dominate the countryside there. Another large China automaker is SAIC Motor who sells the popular Roewe RX5. China's top-selling SUV is a brand named Wey, manufactured by Great Wall Motors Company in China. Another Chinese firm, Zotye Auto, is building and selling electric cars in their country.
With U.S., German, and Korean firms doubling down on trying to manufacture and sell automobiles in China, coupled with the national firms mentioned above tripling down on building home market share, China has become the most-contested region in the world for marketing vehicles. In China, Volvo just launched its Polestar premium electric car while Tesla is both producing and selling electric cars there already. Although car sales in China grew only 1.4 percent in 2017, the slowest pace in 15 years, sales of electric cars in China in 2017 grew 72 percent to 578,000.
The automobile market in China is analogous in many respects to any region that offers a fast growth rate for certain products in any industry, in that numerous rival firms join the fray trying to be a first mover to the extent possible, rather than a late follower. All firms cannot win and a big shakeout is inevitable in China, but Lynk plans to gain economies of scale soon by rolling out its brand across the planet.
Questions:
- How important are economies of scale in the automobile industry for being successful in a country such as China?
- What are the competitive advantages and disadvantages of entering a market or country where the rivalry among firms is so intense compared to targeting areas that offer less growth and less rivalry?
- A diagram displays the following: on the x-axis rivalry of firms (low, medium, high) and on the y-axis potential growth in revenues (low, medium, high), draw a line for China and another line for the United States to reveal the thought process regarding the automobile industry tradeoffs that firms make in deciding where and why to focus money and resources. What do the lines represent or mean strategically?